Households Debt Restructuring: Evidence from the French

36 Pages Posted: 30 Oct 2012

Date Written: October 1, 2012

Abstract

France has a long and unique experience of public intervention in household debt restructuring. When facing financial distress, households can file a case to a “households’ over-indebtedness commission” (HOC). These HOCs either grant a delay of payment or impose a partial reimbursement of the secured or unsecured debt. This paper evaluates the ex post impact of this decision on the creditors’ recovery rate, the household’s re-default rate and the net benefit of the treatment, defined as the amount recovered by the creditors minus the public cost of treatment of the file. The random allocation of the households over file managers with different pro-household friendlinesses is used to correct for endogeneity. Sixty percent of households are ordered to repay part of their debt. Over a two-year horizon, the possibility to grant a delay of payment decreases the average redefault rate and the average repayment rate respectively from 13 to 7 percentage points and from 14 to 12 percentage points. The net benefit over a small fraction of low distressed households offsets the loss observed over a large fraction of more distressed households. Our results highlight a substantial impact of the severity of the case manager.

Keywords: Bankruptcy, Household Finance, Default, Debt Restructuring, Loan Modification

JEL Classification: D1, G2, K35

Suggested Citation

Fraisse, Henri and Froute, Philippe, Households Debt Restructuring: Evidence from the French (October 1, 2012). Banque de France Working Paper No. 404, Available at SSRN: https://ssrn.com/abstract=2168216

Henri Fraisse (Contact Author)

Banque de France ( email )

Paris
France

Philippe Froute

Banque de France ( email )

Paris
France

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